Several Federal Reserve Bank Presidents have recently reiterated the possibility of modest interest rate cuts within the year, while simultaneously emphasizing the indispensability of the central bank's independence for maintaining price stability. Philadelphia Fed President Anna Paulson and Chicago Fed President Austan Goolsbee separately outlined their views on the economic outlook and monetary policy, while Minneapolis Fed President Neel Kashkari explicitly advocated for holding interest rates steady at the upcoming policy meeting later this month.
On Wednesday, Eastern Time, Paulson, speaking at a Greater Philadelphia Chamber of Commerce event, reiterated that if inflation cools and the labor market stabilizes, the Fed could implement further small rate cuts later this year. This aligns with her statements from earlier this month. Goolsbee, in a media interview, defended the Fed's independence, stating, "The Fed's independence is critical to this country's long-run inflation rate." Kashkari emphasized that regardless of who the next Fed Chair is, the Fed's policy must be based on data, not political directives, adding that the collective decision-making process serves as a defense against interference.
Both Paulson and Kashkari hold voting rights on the Fed's policy-setting committee, the FOMC, in 2026, while Goolsbee is a voter in 2025. Their comments underscore that, despite pressure from the Trump administration for significant rate cuts, Fed officials remain committed to setting interest rate policy based on economic data rather than political preferences. Market expectations widely anticipate that the Fed will hold rates steady and pause its cutting cycle at the January 27-28 FOMC meeting.
Paulson Reiterates Stance on Modest Cuts
In prepared remarks on Wednesday, Paulson expressed being "cautiously optimistic" about inflation, suggesting that "at the current pace, it's quite likely that inflation will be near 2% by the end of the year." She projected that inflation will slow, the labor market will stabilize, and economic growth will reach around 2%. She stated:
"If all that happens, it might be appropriate to make some modest further adjustments to the federal funds rate later this year."
Paulson described the current monetary policy stance as "slightly restrictive," noting that this level of tightness will help bring inflation "all the way" back down to the Fed's 2% target. She observed that the labor market is "clearly bending, but not breaking," and that risks in the labor market "have increased, which was an important factor in my support for the FOMC's 75 basis points of rate cuts last year." Paulson also mentioned that many businesses have already raised prices due to tariffs, and that price pressures will likely be concentrated mainly in the goods sector. She found the easing of services inflation "encouraging" and the housing inflation data "unquestionably good." She further pointed out that employment data is a better indicator of economic momentum than growth data. These remarks continue Paulson's first detailed policy statements as a voting member of the FOMC this year. Earlier in January, she indicated that at a level of 3.5% to 3.75%, the Fed's interest rate target remains "slightly restrictive," meaning rates are high enough to restrain high inflation and could eventually allow for further cuts.
Goolsbee Defends Fed Independence
In an interview on Wednesday, Goolsbee stressed the necessity of Fed independence for achieving low inflation and price stability. He said:
"Any place that doesn't have central bank independence, inflation comes roaring back. We've spent the last five years trying to get the inflation rate down; it's not easy, and if you attack the Fed's independence, you make that problem worse."
Goolsbee expressed appreciation for Fed Chair Powell, adding that "if we get into a situation where the Fed's independence or even Chair Powell's integrity is being questioned, we're in a bad spot." Goolsbee's comments come as the Justice Department last week issued a subpoena to the Fed, investigating Powell's statements during last year's congressional testimony. Powell issued a statement on Sunday, characterizing the action as related to the Fed setting rates based on economic conditions, not on Trump's preference for aggressive cuts. Goolsbee also said on Wednesday that the lower-than-expected CPI increase in December was a positive development. He stated: "One thing I'm watching is whether consumers will continue to be the driver of growth. On the inflation side, is there evidence that we are putting the price surge behind us."
Kashkari Advocates for Holding Steady in January
In an interview published on Wednesday, Kashkari stated that Trump's pressure on the Fed over the past year has been driven by interest rates, noting that the mentioned escalation of pressure is fundamentally about monetary policy. He believes Powell accurately characterized the nature of the criminal investigation, suggesting the Trump administration is using administrative tools as leverage to force the Fed to cut rates. Kashkari warned that if the U.S. Supreme Court rules in Trump's favor, enabling the president to dismiss officials at will, it would undermine a fundamental element of Fed independence. He also noted that the Supreme Court's recent rhetoric seems to indicate a tendency to treat the Fed differently from other independent agencies. Kashkari also expressed that the Fed should maintain interest rates at its next FOMC meeting at the end of this month, even though policymakers might cut rates again later in the year. He cited economic resilience and concerns that inflation remains elevated as reasons for not cutting further now. He worries that inflation could remain above the Fed's 2% target for the next two to three years. The Fed cut rates by 25 basis points at each of its final three meetings from September to December 2025, but divisions over whether to continue cutting intensified as the year-end approached. Most market participants currently expect the next Fed rate cut will not occur until June. According to projections released by the Fed last month, a majority of policymakers anticipate only one 25-basis-point rate cut this year.
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